GBP: upcoming drop

The British pound entered summer higher against USD and EUR. What’s the reason?

Risk-on and weak USD

Donald Trump didn’t announce any direct sanctions against China on Friday. Investors interpreted his speech as the sign that the trade deal between the USA and China may not be abandoned. As a result, the market sentiment improved and pushed the British pound up. The pound tends to rise in times of the optimistic market mood. Another reason is the weak US dollar caused by protests in the USA.

Let’s look at the GBP/USD. The British pound have rallied since May 18. Now it’s headed towards the 61.8% retracement level at 1.247. If it breaks through it, it will clear the way towards 1.265. Support levels are at 50 and 38.2 Fibo or 1.2275 and 1.2085, relatively.

Brexit will put GBP under pressure

Catch this rise as it will be over soon. The next week will be full of Brexit headlines that will put the British pound under pressure. It needs to be really strong to keep rallying. Most analysts doubt that the UK and the EU will make some progress in Brexit talks during this week. When the EU is open to prolong negotiations, the UK is strictly against it. The deadline is the end of this year, that’s why Boris Johnson still has time to fulfil his promise to complete this deal as planned. However, before they come to the agreement, pound may go down on the uncertainty around Brexit. According to CME Group, "The British Pound rallies when the UK moves toward deeper integration with Europe, and falls when the UK moves towards a no-deal Brexit decision".

Let’s look at the EUR/GBP. The price set a quite strong bullish trend as all moving averages are in an ascending order from the top down. However, the British pound outperformed the Euro today. It may meet support levels at 0.8885 and 0.8830. The resistance level at 0.9085. Anyway, EUR will gain soon as the ECB is going to unveil the rescue program with an additional 500 billion euros of assets purchases.

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Author: FBS Analyst Team

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